The money market refers to the market for short-term financial instruments with maturities of one year or less. It allows participants to buy and sell cash-like assets. Common instruments include treasury bills, commercial paper, certificates of deposit, and repurchase agreements. The money market serves important functions like providing liquidity and allowing governments and businesses to borrow short-term funds. It also enables central banks to regulate the supply of money in the economy.
The money market refers to the market for short-term financial instruments with maturities of one year or less. It allows participants to buy and sell cash-like assets. Common instruments include treasury bills, commercial paper, certificates of deposit, and repurchase agreements. The money market serves important functions like providing liquidity and allowing governments and businesses to borrow short-term funds. It also enables central banks to regulate the supply of money in the economy.
The money market refers to the market for short-term financial instruments with maturities of one year or less. It allows participants to buy and sell cash-like assets. Common instruments include treasury bills, commercial paper, certificates of deposit, and repurchase agreements. The money market serves important functions like providing liquidity and allowing governments and businesses to borrow short-term funds. It also enables central banks to regulate the supply of money in the economy.
Money market refers to the market where money and highly liquid marketable securities are bought and sold having a maturity period of one or less than one year. It is not a place like the stock market but an activity conducted by telephone. The money market constitutes a very important segment of the Indian financial system. The highly liquid marketable securities are also called as money market instruments’ like treasury bills, government securities, commercial paper, certificates of deposit, call money, repurchase agreements etc. Content What is Money Market? Features of Money Market Objective of Money Market Importance of Money Market Instrument of Money Market Disadvantage of Money Market Features of develop money market Recent development in money market What is Money Market? As per RBI definitions “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”. The money market is a mechanism that deals with the lending and borrowing of short term funds(less than one year). A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. It doesn’t actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes & govt papers which can converted into cash without any loss at low transaction cost. It includes all individual, institution and intermediaries Features of Money Market It is a market purely for short-terms funds or financial assets called near money. It deals with financial assets having a maturity period less than one year only. In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done Objective of Money Market? To provide a parking place to employ short termn surplus funds. To provide room for overcoming short term deficits. To enable the central bank to influence and regulate liquidity in the economy through its intervention in this market. To provide a reasonable access to users of short Term funds to meet their requirement quickly, adequately at reasonable cost. Importance of Money Market?
Development of trade & industry.
Development of capital market. Smooth functioning of commercial banks. Effective central bank control. Formulation of suitable monetary policy. source of finance to government Instrument of Money Market
A variety of instrument are available in
developed money market. In India till 1986, only a few instrument were available. They were Treasury bills Commercial papers Certificate of deposit Banker’s acceptance Repo instrument Repurchase agreement Mutual fund Treasury Bills (T-Bills) (T-bills) are the most marketable money market security. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. T-Bills are so popular among money market instruments because of affordability to the individual investors. Commercial paper (CP) CP is a short term unsecured loan issued by a corporation typically financing day to day operation. CP is very safe investment because the financial situation of a company can easily be predicted over a few months. Only company with high credit rating issues CP’s. Certificate of deposit (CD) A CD Is a time deposit with a bank. Like most time deposit, funds can not withdrawn before maturity without paying a penalty. CD’s have specific maturity date, interest rate and it can be issued in any denomination. The main advantage of CD is their safety. Anyone can earn more than a saving account interest. Banker's Acceptance A banker’s acceptance (BA) is a short-term credit investment created by a non-financial firm. BA’s are guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market. BA acts as a negotiable time draft for financing imports, exports or other transactions in goods. This is especially useful when the credit worthiness of a foreign trade partner is unknown. Repurchase agreement (Repos) Repo is a form of overnight borrowing and is used by those who deal in government securities. They are usually very short term repurchases agreement, from overnight to 30 days of more. The short term maturity and government backing usually mean that Repos provide lenders with extreamly low risk. Repos are safe collateral for loans. Disadvantage of Money Market Purchasing power of your money goes down, in case of up in inflation. Absence of integration. Absence of Bill market. No contact with foreign Money markets. Limited instruments. Limited secondary market. Limited participants. Features of Develop money market Highly organised banking system. Presence of central bank. Availability of proper credit instrument. Existence of sub-market. Ample resources. Existence of secondary market. Demand and supply of fund. Recent development in Money Market Integration of unorganised sector with the organised sector. Widening of call Money market. Introduction of innovative instrument.. Offering of Market rates of interest.. Promotion of bill culture. Entry of Money market mutual funds. Setting up of credit rating agencies. Adoption of suitable monetary policy. Establishment of DFHI. Setting up of security trading corporation of India ltd (STCI).